BELGRADE – Serbia’s balance of payments showed a $1.4 billion surplus in January-November 2007, a level four times lower than a year earlier which economists said spelled trouble ahead. According to central bank statistics, the 11-month report showed the current account deficit at $5.9 billion and a capital account surplus of $7.7 billion, leaving a balance of payments surplus of $1.4 billion. The net figure is after items such as exchange rate differentials, short-term trade finance credits and real credits and omissions. Serbia ran a $3.6 billion current account deficit and a $9.3 billion capital account surplus in the same period in 2006. «Once we lose this balance-of-payments surplus, we will face a financial crisis,» Stojan Stamenkovic, chief economist at the Belgrade-based Economics Institute think tank, told reporters. «The crisis is not imminent,» he said. «But when it happens the central bank will have to use its reserves to cover the gap. The dinar will then fall and all that’s left is inflation.» The economy grew by an estimated 7.1 percent in 2007, but retail price inflation hit 10.1 percent, industrial output slowed down, foreign investments fell by more than 30 percent, the budget gap widened to 1.0 percent of GDP and the trade deficit rose by around 40 percent year-on-year. The bank’s 11-month report showed the trade gap at $8.4 billion and foreign direct and portfolio investment at $2.4 billion. The nation’s official hard currency reserves stood at $14.2 billion at the end of 2007, some 15 percent above 2006. Stamenkovic’s research team tested four possible scenarios for the 2008-10 period assuming that the economy grows by 6.0 percent in 2008 and by 6.5 percent in 2009 and 2010. «If we keep on spending beyond our means there will be no money left for investment. And if the government wants fixed investment to grow on top of growing spending, a financial crisis is inevitable,» he said. Another researcher, Jurij Bajec, said it would be too sensitive for the government to clamp down on private spending in order to cut the trade deficit and boost fixed investment. «This is practically impossible, because it would imply a strong and stable government with clear political and economic commitments,» Bajec said. «The only possibility left is for the government to cut its spending.» But it was equally hard to imagine a government cutting its own spending by 5.0 percent a year to defuse a financial crisis and set the scene for sustainable growth, he said. Lower state spending, which official statistics show at around 20 percent of GDP of an estimated -31.4 billion ($46.04 billion) in 2007, would imply painful reforms. «Serbia needs pension and land reforms, it needs to privatize monopolies and cut off subsidies to the public sector,» said another researcher, Miladin Kovacevic.